“Sometimes the things we think we know, we don’t,” said Gordon Goodman of NRG Energy, the first of three speakers at the webinar. Goodman’s claim to fame is publication of a prescient article in July 2007 in which he warned about the coming “burst” of the credit bubble. He showed several CreditGrades historical charts that appeared during the run-up to the 2007 financial meltdown. Note the suspiciously low credit risk in the following chart; it was blind acceptance of this nearly-zero credit risk that helped create the bubble.

In 2006, credit risk for energy sector was misjudged to be very small.

“The CVA and DVA are very similar calculations,” he said. Both depend on guarantee valuation methodology. “The final values must be adjusted for collateral” as well as “by any guarantees that reduce the measured credit risk,” he noted.

Goodman advocates a unified approach to market risk and credit risk. “The goal is to be consistent, but not too consistent,” he said. There are “real differences in the in the quality of risks” that cannot be minimized. ª